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Currency Market Analysis

Jun 23, 2021 | Currency Market Analysis

Global Themes

The U.S. dollar faded further from two-month highs after remarks from the Fed’s top official struck a less hawkish tone. The subdued dollar pushed the euro, sterling and Canadian dollar to nearly one-week highs. The dollar shot to two-month highs last week after the Fed sketched a markedly brighter outlook for growth and forecast it would start to raise interest rates in 2023. While the dollar retains a portion of its Fed-inspired gains, it bled some of them after remarks from Chairman Powell this week allayed inflation worries. Mr. Powell played down inflation risk and suggested the Fed wouldn’t dial down on stimulus anytime soon. Mr. Powell’s reassure on inflation boosted stocks and weighed on Treasury yields and the dollar. The dollar has also struggled to maintain its rally amid a lack of much U.S. data until later this week.


The euro neared one-week highs as the dollar lost thrust and euro zone data offered clear evidence of the bloc’s recovery shifting into a higher gear. A gauge of euro zone services growth accelerated in June and at the fastest pace since August 2007. The data came ahead of Germany’s Ifo survey of business confidence on Thursday that’s forecast to brighten to new multiyear highs. 


Canada’s dollar remained in a post-Fed decision hole, albeit a smaller one. The loonie rose to nearly one-week highs Wednesday as the U.S. dollar squandered more of its recent gains and oil flirted with multiyear highs not far from $74. Canada’s dollar largely shrugged off news that area retail sales tumbled 5.7% in April, a bigger than expected decline and the largest in a year. The data offered evidence of the Canadian economy decelerating at the start of the spring quarter. Canada forecast further weakness with May retail sales likely to fall 3.2%.


The UK pound flirted with one-week highs as it continued to recover after sinking to two-month lows earlier this week. Sterling bulls appear to be regrouping ahead of a Bank of England policy announcement Thursday that could see officials take a page out of the Fed’s hawkish playbook. A central bank that should play up recovery optimism would likely focus market attention on prospects for higher rate policy, a topic that’s typically currency friendly. 

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